Capital Markets Union to breath new life into Ireland’s international financial services sector
PwC’s Ken Owens analyses the goals of the EU’s Capital Markets Union initiative, and looks at the opportunities that it could create for Ireland’s international financial services industry.
Raising the necessary finance for business continuation, investing to meet expanding customer demand and expanding at home and abroad are some of the key challenges which businesses are continuously grappling with.

The objectives of the EU’s Capital Markets Union (CMU) initiative are to help businesses tap into more diverse sources of capital from anywhere within the EU. The aim is to make markets work more efficiently and offer investors and savers additional opportunities to put their money to work in order to enhance growth and create jobs.
Ken Owens
Ken Owens

Banks will remain key players in capital markets, as issuers, investors and intermediaries and they will continue to play a major role in credit intermediation through their role in funding and maturity transformation.

However the CMU Green Paper identifies the growth of private equity, venture capital, loan funds, and long term investment in Europe as a major strategic objective. A more diverse population of lenders would improve credit flow, mitigate against the “too big to fail” syndrome and enhance financial stability by aligning debt maturities and risk with pools of investors with matching objectives. Over time, with the creation of a harmonised pan-European regime (with a passport) for private debt and loan origination funds, there could be sufficient volume of debt/loans to allow for the development of a deep and liquid secondary market similar to that which already exists in the US. As a major investment fund domicile and fund servicing centre, Ireland can play a key role in the development and promotion of investment fund solutions to address the objectives of CMU.

The Central Bank of Ireland has introduced a loan origination regime for qualifying investor alternative investment funds in Ireland. A similar regime has recently been introduced in Germany. The Irish funds industry’s product offering in the private equity space is dated and needs modernisation. Legislative and tax changes are required to enable Ireland to compete effectively for the new private equity business which will arise from CMU.

Competition is fierce amongst the major fund domiciles to attract new managers from all parts of the globe who will be establishing new funds aimed at taking advantage of the opportunities which CMU will provide. Speed to market and new product innovation are critical to the continued success of the funds industry in Ireland and to growing the numbers employed in the industry.

A strong ecosystem of financial services firms servicing this business already exists in Ireland and CMU is an opportunity to enhance and grow this sector of the Irish economy. There is demand for innovation in financial services - Ireland is well placed to play a key role in this and many of the initiatives which will come from the recently announced IFS 2020 strategy should enable Ireland to benefit, both from increased economic activity and from employment growth.
Ken Owens is a partner in PwC’s asset management practice.
This article appeared in the June 2015 edition.